Calculating Damages for Patent Infringement in Different - PDF document

Calculating Damages for Patent Infringement in Different Jurisdictions Special Feature by AIPF Patent Committee October 7, 2019 Introduction By: Brendan Nugent, Michael Buck IP A patent owner often enters patent litigation with the aim of preventing the infringing conduct of the defendant. However, they may also wish to obtain compensation for the damage already caused by the infringer. Patent litigation is often multi-jurisdictional, so the patent owner will very likely need to consider the amount of damages that might be awarded in a number of countries. This article provides guidance on calculating damages in several key jurisdictions. United States By: Grant Shackelford, Sughrue Mion, PLLC Recovering patent damages In the United States district court cases, 1 damages for patent infringement are awarded once a court has found that a patent is infringed, valid, and enforceable. In a jury trial, the jury will assess the amount of the damages; in a bench trial, the judge will make this determination. In either case, evidence in the form of expert testimony routinely plays an important role in assessing damages to be awarded. Calculating damages Damages for patent infringement are awarded under 35 U.S.C. § 284, which provides “damages adequate to compensate for the infringement, but in no event less than a reasonable royalty[.]” 2 Damages are calculated in the form of the patent owner ’s lost profits and/or a reasonable royalty. For recovering lost profits, the patent owner must prove that but for the infringement it would have made certain profits. While several factors may contribute to a lost profits calculation, two commonly raised sources of lost profits are lost sales by the patent owner and/or price erosion resulting from the infringing activity. Courts apply a four-factor test when determining whether to award lost profits (the “ Panduit factors”), requiring proof of (1) demand for the patented product; (2) absence of acceptable non-infringing substitutes; (3) patent owner ’s manufacturing and marketing capacity to exploit the demand; and (4) the profit the patent owner would have made. 3 1 In enforcement proceedings before the International Trade Commission (ITC), the remedy is in rem , resulting in an exclusionary order that precludes importation into the United States of an infringing product. 2 35 U.S.C. § 289 provides an alternative measure of damages specific for infringement of design patents. 3 Panduit Corp. v. Stahlin Brothers Fibre Works, Inc. , 575 F.2d 1152, 1156 (6 th Cir. 1978).

Reasonable royalty damages are calculated based on a hypothetical licensing negotiation between the patentee as a willing licensor and the accused infringer as a willing licensee, wherein the court attempts to ascertain the royalty payment scheme to which the willing parties would have agreed at the time the infringement began. In making this calculation, courts consider evidentiary factors, referred to as the Georgia Pacific factors, that take into account relevant and real world business considerations, such as the patentee’s licensing history, value of the patented product to the parties, and market demand. 4 Enhanced damages are also possible pursuant to 35 U.S.C. § 284, which provides that courts “may increase the damages up to three times the amount found or assessed.” Courts have discretion whether to award enhanced damages and reserve such measures for “egregious cases of misconduct,” such as willful infringement. 5 Limitations to patent damages The availability of patent damages in the United States is limited by statute and case law. 35 U.S.C. § 286 bars the recovery of damages for infringing activities that occurred more than six years prior to the filing a complaint or counterclaim for patent infringement. In the case where the patent owner practices the patented technology, 35 U.S.C. § 287(a) precludes recovery of damages prior to an accused infringer receiving notice of the patent. Such notice may be actual, through an affirmative charge of infringement, 6 or constructive, by physically or virtually marking the patented article with the patent number. 35 U.S.C. § 287(b) limits the remedies for infringement, where a party imports, sells, offers to sell, or uses an unpatented product made by a patented process. 35 U.S.C. § 287(c) bars damages for infringement from a medical practioner’s performance of a medical activity that constitutes direct or induced patent infringement. The defense of equitable estoppel can bar recovery of damages where a patentee through misleading conduct leads an accused infringer to reasonably infer that the patentee does not intend to assert its patent against the accused infringer, and the accused infringer reasonably relies on that conduct to its detriment. 7 Double recovery of damages for the same infringing conduct is also barred. 8 Recent developments regarding patent damages Recent decisions from the United States Supreme Court have impacted the availability and scope of patent damages. In WesternGeco LLC v. ION Geophysical Corp ., 9 the Supreme Court held that a patentee can recover lost foreign profits for infringement of a U.S. patent under 35 U.S.C. § 271(f)(2), where the accused infringer supplies unpatented components of a patented invention from within the United States for assembly abroad, with knowledge that the components will be combined in a 4 Georgia-Pacific Corp. v. United States Plywood Corp , 318 F.Supp. 1116, 1121 (S.D.N.Y. 1970). 5 Halo Elecs., Inc. v. Pulse Elecs., Inc. , 136 S. Ct. 1923, 1935 (2016). 6 Amsted Indus. Inc. v. Buckeye Steel Castings Co. , 24 F.3d 178, 186-187 (Fed. Cir. 1994). 7 High Point SARL v. Sprint Nextel Corp. , 817 F.3d 1325, 1331 (Fed. Cir. 2016). 8 Texas Advanced Optoelectronic Sols., Inc. v. Renesas Elecs. Am., Inc. , 895 F.3d 1304, 1328 (Fed. Cir. 2018). 9 WesternGeco LLC v. ION Geophysical Corp. , 138 S. Ct. 2129 (2018).

manner that would infringe if the combination occurred within the United States, and the components lack substantial non-infringing uses. In SCA Hygiene Prods. AB v. First Quality Baby Prods. LLC , 10 the Supreme Court held that the defense of laches, where a patent owner unreasonably delays in bringing suit, is no longer a defense to pre-suit damages. In Halo Electronics, Inc. v. Pulse Electronics, Inc ., 11 the Supreme Court reduced the evidentiary requirements for a plaintiff to recover enhanced damages under 35 U.S.C. § 284, holding that “subjective willfulness of a patent infringer, intentional or knowing, ma y warrant enhanced damages, without regard to whether his infringement was objectively reckless.” 12 Germany By: Felix Klopmeier, Lang & Rahmann In Europe, the so-called Enforcement Directive 13 harmonized several aspects of the enforcement of intellectual property rights. Art. 13 of the Directive addresses damages and provides for aspects the judicial authorities should consider when setting damages. Recital 26 of the Directive expressly states that member states are not obliged to introduce punitive damages. Germany amended § 139 of the Patent Code to transfer the Directive into national law. Recovering patent damages In order to claim damages, a patent owner would start by sending a warning letter to the alleged infringer to give the infringer a chance to accept the claim. Otherwise, the patent owner might have to bear the costs of the proceedings. If the infringer doesn’t accept liability, the patent owner would initiate court proceedings in which they would demand that the infringer accepts (general) liability for damages and provides information about the extent of the infringement. The first instance proceedings usually last for 9 to 18 months, appeal proceedings can last another 12 to 18 months. After that, the patent owner can decide which method of damage calculation is most favorable and calculate the damages accordingly. At this stage, parties usually settle but, if they don’t , the patent owner would start new court proceedings, this time claiming payment of the calculated damage amount. These proceedings tend to be faster as the infringement at this stage is an established fact between the parties and binding. The validity of a patent can’t be challenge d in infringement proceedings and, usually, infringement proceedings will not be stayed to wait for the outcome of an invalidity action pending at the Federal patent court. Calculating damages There are three methods used to calculate damages, namely 1) lost profits, 2) infringer’s profits and 3) adequate license fee. 10 SCA Hygiene Prod. Aktiebolag v. First Quality Baby Prod., LLC , 137 S. Ct. 954 (2017). 11 Halo Elecs., Inc. v. Pulse Elecs., Inc. , 136 S. Ct. 1923 (2016). 12 Id. at 1933. 13 Directive 2004/48/EC.